Correlation Between Honda and Alaska Air

Can any of the company-specific risk be diversified away by investing in both Honda and Alaska Air at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Honda and Alaska Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Honda Motor Co and Alaska Air Group,, you can compare the effects of market volatilities on Honda and Alaska Air and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Honda with a short position of Alaska Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Alaska Air.

Diversification Opportunities for Honda and Alaska Air

-0.23

Correlation Coefficient

Honda  Alaska Air

Very good diversification

The 3 months correlation between Honda and Alaska is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Alaska Air Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group, and Honda is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Honda Motor Co are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group, has no effect on the direction of Honda i.e., Honda and Alaska Air go up and down completely randomly.

Pair Corralation between Honda and Alaska Air

Assuming the 90 days trading horizon Honda is expected to generate 12.5 times less return on investment than Alaska Air. But when comparing it to its historical volatility, Honda Motor Co is 1.54 times less risky than Alaska Air. It trades about 0.03 of its potential returns per unit of risk. Alaska Air Group, is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  25,948  in Alaska Air Group, on October 6, 2024 and sell it today you would earn a total of  13,752  from holding Alaska Air Group, or generate 53.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Honda Motor Co  vs.  Alaska Air Group,

Honda Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Honda is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alaska Air Group,

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group, are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Alaska Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Alaska Air

The main advantage of trading using opposite Honda and Alaska Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Alaska Air can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alaska Air will offset losses from the drop in Alaska Air's long position.

The idea behind Honda Motor Co and Alaska Air Group, pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.